Slow­down in spend­ing growth should af­fect cost-cut­ting de­bate

The slow­down is real and should im­pact fed­eral cost-cut­ting de­bate

Modern Healthcare - - NEWS -

It’s too soon to pop the Cham­pagne corks on health­care spend­ing. But the lat­est ev­i­dence sug­gests the slow­down is real and not just re­ces­sion-re­lated. The head­line num­ber re­ported last week by the CMS ac­tu­ar­ies showed over­all health­care spend­ing grew by only 3.9% in 2011, no dif­fer­ent than the pre­vi­ous two years. Health­care’s share of the over­all econ­omy re­mained at 17.9% for the third straight year.

Growth in the pri­vate sec­tor was ac­tu­ally slower than the over­all econ­omy. With more em­ploy­ers rais­ing co­pays and turn­ing to high-de­ductible health plans, work­ers and their fam­i­lies, many with ei­ther no raises or ones well be­low in­fla­tion, are pulling back hard on the reins of dis­cre­tionary care. Out-of-pocket spend­ing grew by just 2.8% in 2011, even less than the lim­ited 3.8% in­crease in spend­ing on pri­vate in­surance by em­ploy­ers.

Government pro­grams, on the other hand, grew slightly faster than the over­all econ­omy. But that isn’t cause for alarm. There were 2.5% more se­niors on Medi­care, lead­ing to a higher rate of spend­ing on the el­derly and the dis­abled (6.2% growth). That was par­tially off­set by slower spend­ing growth in state-run pro­grams for the poor (just 2.5%).

Does this slightly faster than GDP growth in pub­lic pro­grams jus­tify po­lit­i­cal de­mands for ma­jor cuts in en­ti­tle­ment pro­grams?

Hardly. In fact, the long-term trends in Medi­care spend­ing are look­ing bet­ter and bet­ter.

It’s im­por­tant to re­mem­ber the CMS ac­tu­ar­ies’ an­nual re­ports are more than a year out of date. And while it is log­i­cal to think that an im­prov­ing econ­omy will drive health­care spend­ing higher, that’s not what sev­eral new re­ports sug­gest is hap­pen­ing.

Some pri­vate an­a­lysts say health­care spend­ing in 2012 was even slower than 2011 (Jan. 6, p. 10). More sig­nif­i­cantly, the Con­gres­sional Bud­get Of­fice and the CMS Of­fice of the Ac­tu­ary (OACT)—the of­fi­cial ar­biters of fed­eral bud­get pro­jec­tions—are sig­nif­i­cantly re­duc­ing their es­ti­mates for fu­ture spend­ing on health­care, es­pe­cially in the na­tion’s Medi­care pro­gram, based on re­cent trends.

The CBO now projects Medi­care spend­ing will ac­tu­ally shrink by 0.3% per ben­e­fi­ciary over the next decade when com­pared to the over­all growth in the econ­omy. And that lat­est es­ti­mate in­cludes the as­sump­tion that Congress will per­ma­nently re­store physi­cian pay to cur­rent lev­els—the so-called “doc fix.” The OACT is only slightly more pes­simistic, say­ing there will be no change in spend­ing per ben­e­fi­ciary growth. In other words, the ac­tu­ar­ies be­lieve Medi­care spend­ing will re­main sta­ble as a share of the over­all econ­omy, a ma­jor im­prove­ment from pre­vi­ous pro­jec­tions.

In a ra­tio­nal po­lit­i­cal en­vi­ron­ment, this should in­flu­ence the fed­eral pol­icy de­bate. Yet dur­ing the first week of the new Congress, Repub­li­can leg­is­la­tors in the House spent hours rail­ing against the Pa­tient Pro­tec­tion and Af­ford­able Care Act’s pro­vi­sion that sets up an In­de­pen­dent Pay­ment Ad­vi­sory Board, whose rec­om­men­da­tions for cuts in Medi­care go into ef­fect only if the pro­gram’s costs per ben­e­fi­ciary grow faster than GDP + 1%. Dur­ing the debt-ceil­ing ne­go­ti­a­tions that will take place over the next sev­eral months, the ad­min­is­tra­tion may re­float its pro­posal to cut that to GDP + 0.5%

But if the cur­rent pro­jec­tions by the CBO are put in its base­line—and why wouldn’t they?—an “en­ti­tle­ment cut” to GDP + 0.5% would ac­tu­ally be an in­crease!

The Obama ad­min­is­tra­tion is­sued a report last week that cred­ited the Af­ford­able Care Act for the slow­down in spend­ing, es­pe­cially its cuts to providers and in­sur­ers, its ef­forts to curb fraud and abuse and its nascent moves on pay­ment and de­liv­ery-sys­tem re­form.

Skep­tics abound, es­pe­cially on the other side of the aisle. But that doesn’t mat­ter. When the of­fi­cial pro­jec­tions come out in the pres­i­dent’s bud­get and from the CBO, politi­cians and deficit hawks push­ing for deep cuts in en­ti­tle­ment pro­grams will be fac­ing a very dif­fer­ent set of num­bers than they’ve faced in the past.

Those new pro­jec­tions will show that providers’ ef­forts at cut­ting costs are paying off. It’s time they get credit for those ef­forts in Washington.


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